I hate payday loan places. I've never used one but I think they prey on the poor choices and tight spaces people get into, and they charge truly horrific levels of interest. I can't imagine juggling five of those sharks.
If a person is going to a payday loan place they are in trouble. But without them we would be back to organized crime loan sharks. To get rid of them would be like prohibition - people didn't stop drinking instead they went to organized crime.
Credit card interest rates, penalties and other fees are also outrageous.
Payday loan - Wikipedia, the free encyclopedia
Net profitability
A study by the
FDIC Center for Financial Research[
citation needed] found “operating costs lie in the range of advance fees” collected and that, after subtracting fixed operating costs and “unusually high rate of default losses,” payday loans “may not necessarily yield extraordinary profits.” Based on the annual reports of publicly traded payday loan companies, loan losses can average 15% or more of loan revenue. Underwriters of payday loans must also deal with people presenting fraudulent checks as security or making stop payments.
Critics concede that some borrowers may default on the loans, but point to the industry's pace of growth as an indication of its profitability. Consumer advocates condemn the practice as a whole, regardless of its profitability, because it "takes advantage of consumers who are already hard-pressed to pay their debts".
[26]
[edit] Proponents' stance
Proponents claim that cash advance loans provide a service that is not available from other sources. Many credit unions have attempted to offer similar products, but have been unable to do so without government subsidies or grants, a fact that many lenders and reports have highlighted. Furthermore, most of these programs offered by credit unions have ended due to the high default rates of borrowers.[
citation needed]
A staff report released by the
Federal Reserve Bank of New York concluded that payday loans should not be categorized as "predatory" since they may improve household welfare.
[27] "Defining and Detecting Predatory Lending" reports "if payday lenders raise household welfare by relaxing credit constraints, anti-predatory legislation may lower it." The author of the report, Donald P. Morgan, defined predatory lending as "a welfare reducing provision of credit." However, he also noted that loans are very expensive, and that they are likely to be made to under-educated households or households of uncertain income.